Diversification, Relatedness, And Firm Performance: Empirical Evidence From China

Abstract

The relationship between diversification, relatedness and performance has long been a controversial issue in mainstream strategic management research. Research in this area, however, has focused primarily on developed countries. This study argues that the conclusions drawn from developed countries may not apply to developing countries. In an investigation of 227 publicly-listed companies in China, this study found that: 1) firm scale significantly contributes to the improvement of economic performance; 2) relatedness correlates negatively with firm performance, and 3) the relationship between diversification and performance fits the intermediate model. This study also provided evidence to support the argument that differences do exist in the rationales between firms in developed and developing countries.